Total CEO Pouyanné Considers Measures to Protect European Business in Iran

In a major interview given to French newspaper Le Monde looking at Total’s strong performance in 2017, CEO Patrick Pouyanné was asked about the “American threat” to the company’s “important gas project” in Iran. Pouyanné’s forthright response marks perhaps the first time that a major European executive has publicly called for a diplomatic intervention to protect commercial interests in Iran.

Total’s CEO explained that the South Pars project was “progressing well, without delay, and [Total] continues to work, even if the situation with the American Congress is rather vague.” He noted that even if the Americans “decide to exit the nuclear agreement and if secondary sanctions return in place,” it would pose a “real question” for the French energy giant.

However, echoing comments made to reporters on the sidelines of Davos, Pouyanné did not cast snapback as an automatic game-over for the South Pars project. Rather, he suggested that it was necessary to “clarify the horizon for European business working in Iran.”

He explains that Total has been in discussions with French and European authorities about “means to protect investments already made in Iran, even in the case of the return of sanctions.” Pouyanné points to the experience of European blocking statutes and sanctions waivers applied in the 1990s which proved sufficient to to protect Total’s gas projects at the time. Pouyanné concludes by noting that it is “up to European diplomats to consider these questions.”

The confidence of Pouyanné’s response stands in stark comparison to the general uncertainty that has gripped the business community and will be seen as an important signal. The landmark USD 3.8 billion South Pars project is seen as a bellwether for the larger project of Iran’s post-sanctions economic recovery.

However, Total is far from the only major European multinational engaged in the Iranian market. Pouyanne was one of select group of European CEOs invited to dine with Donald Trump at a special dinner held during the American President’s trip to the World Economic Forum in Davos. Other guests included Siemens CEO Joe Kaeser, ABB CEO Ulrich Spiesshofer and Volvo CEO Martin Lundstedt. Overall, nine of the fifteen companies represented at the dinner are currently active in Iran, and a further five have had a historical presence in the market. Pouyanné’s peers are likely to share his sentiments on the need to protect European interests in Iran and the wider global economy.

While the legal value of blocking statutes or sanctions waivers is questionable given the greater interconnectivity in global markets and greater reticence of the banking sector to engage Iran when compared to the 1990s, the political message behind such measures could be valuable, enabling companies to seek creative solutions to structure their Iran engagements in a way that avoids sanctions exposure.

In a recent survey conducted by Bourse & Bazaar and commissioned by International Crisis Group, a substantial 54 percent of senior executives indicated that “assuming Iran remains committed to the nuclear deal,” blocking statutes, which would protect companies from U.S. penalties, would positively affect the “decision to invest in Iran.”

Photo Credit: Total

In Reprieve for Multinational Business, Trump to Stave Snapback of Iran Sanctions

Following a lengthy interagency review, Donald Trump will today unveil his new Iran policy, bringing to an end months of speculation as to his administration's intentions. Despite Trump’s view of the Iran Deal as “the worst deal ever,” early reports make clear that Trump will not be withdrawing from the Joint Comprehensive Plan of Action (JCPOA).

Despite recent political uncertainty, underlying commercial momentum has remained strong in 2017. Trade between Europe and Iran nearly double in the first half of 2017, compared to the same period the year prior. The Iranian government reports that commitments of foreign direct investment have risen 55% in the last Iranian calendar year. The spectre of decertification has been seen as a risk to this steady growth.  

On Thursday, the Trump administration provided background briefings to European diplomats and the members of the press outlining the content of the pending announcement. While specific details of the new strategy remain embargoed until shortly before Trump’s speech, which will be made at 12:45 EST, reporting by the Julian Borger of The Guardian and the Matthew Lee of the Associated Press, outlines a strategy that is less damaging than had been feared.

While President Trump will formally decertify Iran’s compliance with the JCPOA, he will do so not in denial of Iran’s technical compliance with the agreement, which has been subject to eight confirming reports by the International Atomic Energy Association (IAEA), but rather on the basis of America’s national security interest, in accordance with a specific provision for decertification stipulated in the Iran Nuclear Agreement Review Act (INARA).

The move to decertify will push the issue of the Iran Deal to Congress. The Trump administration is seeking new amendments to INARA in an attempt to address perceived “flaws” in the JCPOA. These include new provisions relating to Iran’s ballistic missile program and the activities of Iran’s Islamic Revolutionary Guard Corps (IRGC) that would automatically trigger the snapback of secondary sanctions in the event of a violation. Importantly, the administration is also seeking an amendment to INARA to remove the requirement for Trump to certify Iran’s compliance every 90 days, a move widely seen as a face-saving maneuver for an administration beset by infighting on the issue.

Crucially for multinational businesses active in Iran, the administration will not be recommending Congress reimpose the sanctions removed as part of the implementation of the JCPOA, which would have been tantamount to America’s withdrawal from the deal. The administration has also decided not to designate the IRGC as a terrorist organization, a move which would have risked drawing the Iranian government into an escalation.

As such, Trump’s announcement will have little immediate bearing on the ability of multinational companies to continue to trade and invest in Iran. Business leaders had long expected Trump to eventually decertify Iran’s compliance and had proceeded with commercial contracts accounting for such a move. In a recent survey of business leaders,  68% of Iranian respondents and 63% of non-Iranian respondents considered snapback a likely or very likely outcome of decertification. The fact that the administration is not recommending the reimposition of secondary sanctions will be seen as a reprieve. The question that now remains is the extent to which Congress wishes to redefine the scope of compliant trade and investment through amendments to INARA.

In what some business leaders see as a silver lining of the turmoil caused by the decertification issue, it may be that more definitive action by Congress could actually help safeguard the implementation of the JCPOA and by extension the operations of multinational businesses in Iran. For example, removing the rolling certification requirements would reduce political uncertainty surrounding the deal and its continued implementation. 

Moreover, that Trump is not withdrawing from the agreement demonstrates that coordinated diplomacy can protect the JCPOA in Washington, and by extension, protect market access. In response to rising political uncertainty, and in the lead-up to today's announcement, European governments and the European business community significantly increased their level of direct dialogue on matters related to Iran Deal implementation. This dialogue helped ensure that the missions of the European diplomatic corps and the business community were mutually reinforcing. The progress made by businesses in engaging in Iran, with notable deals signed this summer by many of Europe’s industrial giants, helped underline the strategic value of the JCPOA for Europe beyond the realm of security issues.

The diplomatic efforts will need to continue. Congress is expected to make its determinations regarding the amendments to INARA within the next two months. There is significant risk that Congress could introduce new provisions to INARA that make compliance politically untenable for the Iranian government, which will see possible automatic snapback as a kind of booby trap. However if Congress takes a more sensible approach, the Iran Deal may yet emerge stronger than before. The new Trump strategy is minimal in its prescriptions. European leaders, must step in to define what a workable Iran policy looks like for all parties.  

Photo Credit: Wikicommons

Long-Awaited Total Deal Signals Rising Investor Confidence in Iran

On Monday, Total will sign a long-awaited contract to develop Iran’s South Pars gas field in cooperation with China National Petroleum Company and Iranian firm Petropars. Total has been involved in developing the South Pars project since 1997 when it was the first international oil company to be awarded a contract following the Islamic Revolution. The landmark deal, which sees Total committed to a 20 year development roadmap, is valued nearly USD 5 billion. Total's share is 50.1%.

The announcement of the contract signing ceremony follows eight months of deliberations since the heads of terms was signed in November 2016. In the intervening period, Total has had to navigate a changing political environment, stubborn banking challenges, and wavering investor confidence. The move to conclude the contract signals positive developments in each of these three areas.

Total CEO Patrick Pouyanné, who has shown some bravado by speaking publicly about this deal as it progressed, had stated in February that progressing to a contract was contingent on the U.S. continuing its implementation of secondary sanctions relief as part of the Joint Comprehensive Plan of Action (JCPOA). With the increasingly hostile rhetoric of the Trump administration, continued sanctions relief had remained in doubt. But the administration has since confirmed Iran's compliance with the JCPOA and issued the relevant sanctions relief waivers in mid-May. Just a few days later, Iranian president Hassan Rouhani won a landslide reelection, solidifying his mandate to pursue international engagement and investment.

Total will also feel secure in the fact that European government leaders have been very vocal in their support for Iran and the nuclear deal. Federica Mogherini, Theresa May, Angela Merkel, and a host of European ambassadors have strongly advocated that the US stay the course with the nuclear deal both at the White House and on Capitol Hill. Looking together at these factors, Total must feel confident that the political environment remains conducive to the company's long-term investment in Iran.

At a more practical level, Pouyanné had acknowledged in April that Iran’s as-of-yet unsolved banking challenges were an impediment Total’s investment. The hesitance of international banks to provide financing or facilitate the recurring transactions necessary for day-to-day business in the country required Total to make a special effort to find its own solution. Pouyanné disclosed that Total was testing a new banking mechanism to get money in and out of Iran in a compliant way. This likely means that a medium-sized bank, probably French, has carved out a channel for Total to transfer funds to Iran without involving U.S. persons or U.S. dollars, thereby avoiding a so-called “U.S. nexus.”

While major European banks remain hesitant to do this kind of creative banking for Iran transactions, boards of directors are showing an increasing willingness to make exceptions on behalf of their largest clients and at the behest of national governments. Total's move suggests that the banking channel they created works, and this fact may help other large firms in their negotiations to receive banking facilities for Iran business.

Finally, Total’s contract signing will no-doubt boost confidence across sectors among both international and domestic investors. While Boeing and Airbus have notably concluded major contracts prior to the Total deal, the agreements for the sale of aircraft represent large-scale trade. The Total deal, which involves direct ownership and operation of physical, immovable assets in Iran, is true foreign direct investment with all of the attendant risk. That Total is proceeding is even more impressive considering the company will not start seeing revenues until 2021, when it has committed to bringing the first new gas to Iran's large domestic market. 

Additionally, proceeding to a full contract reflects that Total was satisfied with the terms of Iran's new standard oil and gas contract, known as the IPC contract. While Total’s clear desire to be the first-mover in Iran’s energy sector has meant that they have been somewhat more willing to overlook the known deficiencies in the IPC model, fear of missing out may see peer companies like Shell, Eni, and OMV decide to press forward with their own investment plans within the existing IPC framework. 

For Iran, the true value of the Total deal lies outside the oil and gas sector, which only accounts for about one-fifth of the country's economy. Rather, it is the investor confidence furnished by the Total deal, which will spur activity in other areas like infrastructure, transport, pharmaceuticals, and FMCG, that will really move the needle. Investors in these sectors will no-doubt welcome the deal as the sign of a rising tide. 

Photo Credit: Wikicommons

In Letter to Congress, Rex Tillerson Sends Positive Signal on Iran Deal

Update: Several hours after the publishing of this piece, Secretary of State Rex Tillerson gave a press conference in which he outlined a strongly negative outlook on Iran, underscoring that the administration's review of Iran policy will take into account the full breadth of foreign policy concerns including support for terrorism and human rights violations. The statement can be seen here. 

In a letter to House Speaker Paul Ryan sent yesterday, Rex Tillerson, the U.S. Secretary of State, confirmed "that Iran is compliant through April 18th with its commitments under the Joint Comprehensive Plan of Action." The letter represents the clearest confirmation to date that the Trump administration is in agreement with the international community on the fact of Iran's compliance with the JCPOA, also known as the Iran Deal. 

While some outlets misreported that the letter was equivalent to an extension of sanctions relief, it is more accurately a preliminary step, part of the State Department's quarterly reporting to Congress on Iran's compliance with the Iran Deal. The critical date for the extension of sanctions relief arrives in mid-May, just prior to the Iranian presidential elections. At that point, Tillerson will need to formally "waive" the US secondary sanctions on Iran, exercising an authority delegated to him by the President.

The timing of the letter to Ryan, coming just one month before the renewals are required, is a positive signal that the Trump administration will continue to implement the Iran Deal. 

To be clear, the letter was not a total break from the relatively hawkish position taken by the Trump administration towards Iran. Tillerson's missive was titled "Iran Continues to Sponsor Terrorism" and it informs Speaker Ryan that President Trump has "directed a National Security Council-led interagency review" to examine whether sanctions relief afforded to Iran is "is vital to the national security interests of the United States." The invocation of Iran as a "leading state sponsor of terror" and the reference to the pending review have led some to see the letter as consistent with President Trump's negative view of Iran and campaign rhetoric in which he described JCPOA as one of the "worst deals" ever negotiated.  

However, the letter should be seen as a positive signal for three reasons. First, it is a confirmation that the Trump administration trusts established verification procedures, which include the oversight of the International Atomic Energy Agency (IAEA) and American intelligence gathering. Many opponents of the Iran deal have tried to cast-doubt on the trustworthiness of both the IAEA assessments and intelligence estimates dating to the tenure of the Obama administration, which have so far pointed to Iran's compliance with the Iran Deal. Tillerson's letter would seem to confirm that these mechanisms of evaluation hold weight for the new administration. 

Second, the letter demonstrates an increasing willingness for the Trump administration to craft its Iran policy through normal channels.  The interagency review requested by President Trump is a formalized and commonly-used process to determine appropriate national security policy. Given that the composition of Trump's National Security Council has changed considerably since he took office, most notably with the ouster of General Mike Flynn, who had put Iran "on notice" shortly before his demise, there is an improved likelihood that a review conducted at this stage would make a sober assessment of the Iran Deal's consistency with the US national security interest. 

Finally, Tillerson's letter reflects that the Trump administration may now have a grasp on the essential challenge it is facing in crafting its policy towards Iran. On one hand, there is considerable pressure from certain congressional leaders and foreign allies such as Saudi Arabia and Israel for the administration to take a much harder stance towards the Islamic Republic. Indeed, it is worth noting that Tillerson's letter coincided with his participation in a U.S.-Saudi CEO Summit hosted by the U.S. Chamber of Commerce. On the other hand, the administration has seemingly come to understand that JCPOA is an effective foreign policy tool, one that actually addresses much of the complexity in dealing with Iran. To cease its implementation of the Iran Deal in the face of Iranian compliance would both strain relations with European allies and likely cause further destabilization in the Middle East. 

For President Trump, the task will be to remain tough, but reasonable. It remains possible for the Trump administration to be tough on Iran by taking the lead on targeted sanctions designations, such as those levied for Iran's February ballistic missile test. But at the same time, it is also reasonable for the administration to continue the "suspension of sanctions related to Iran pursuant to the JCPOA," as the letter puts it, especially if such suspensions support other Trump administration priorities, such as job creation through limited US-Iran trade.  

At this juncture, key stakeholders, including the leaders of American multinationals which stand to benefit from access to the Iranian market, need step-up their outreach to Trump. Encouragingly, the viability of the Iran Deal is no longer "fake news." 

Photo Credit: Wikicommons

Boeing, Iran, and American Jobs

This article was originally published in LobeLog.

New reports suggest that Iran Air’s first new Boeing jetliner could be delivered within the month.

According to Reuters, Boeing is reallocating a 777 originally designated for Turkish Airlines. This would be the first aircraft of eighty for which Boeing and Iran Air signed a $16.6 billion in December 2016. Deliveries for the order, which include fifty 737 MAX 8s and thirty 777s in two variants, were originally slated to begin in December 2018.

The early deliver will be a boost to President Hassan Rouhani’s reelection push, and follows Boeing’s announcement last week of its second agreement to sell passenger airplanes to an Iranian airline—a deal to sell thirty 737 MAX 8 airplanes to Iran Aseman airlines, valued at $3 billion.

The Iran Air and Iran Aseman deals are among Boeing’s largest open orders and come at a time of softening demand for commercial aircraft among the world’s airlines.

Expectations are also high for the deal within the Iranian business community. Many business leaders in Iran, as well as their European peers, see the Iran Air and Iran Aseman contracts as important bellwethers of the willingness of the United States to continue to implement sanctions relief commitments under the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. Specifically, the deals are a test of whether the US Treasury’s Office of Foreign Asset Control will continue to provide licenses to both American and European companies that seek to engage opportunities in Iran. Athough Iran Air and Boeing were able to proceed from a memorandum of agreement to a full contract on the back of an OFAC license issued for the relevant transactions, the license was granted in the final months of the Obama administration. The Iran Aseman deal, which is currently limited to a memorandum of agreement, will only be able to proceed to a full contract when the Trump administration issues an OFAC license.

Trump has called the Iran Deal the “the worst deal ever negotiated.” The question is whether he will see Boeing’s opportunity as a redeeming feature.

When Iran Means Jobs

Boeing’s engagement with Iran pits the Trump administration's skepticism of the value of the Iran nuclear deal directly against an avowed commitment to support American jobs, particularly in the manufacturing sector.

Numerous American companies are engaged in business with Iran, either via their non-US subsidiaries as permitted under General License H or on the basis of humanitarian exemptions for the export of agricultural commodities or pharmaceutical products. However, it is rare for the products eventually exported to Iran to originate in the United States. Generally, the exported goods of American companies are produced in a non-U.S. manufacturing facility as part of a globalized supply chain. As such, for most American multinational corporations, engaging in opportunities in Iran may deliver shareholder value but won’t unlikely support American job creation on a large scale.

Boeing is an exception to this pattern. For political and practical reasons, the production of airplanes was never offshored and therefore a direct link exists between the orders placed in Iran and American labor at Boeing’s primary production facilities in Bellevue, Washington and to a lesser extent, North Charleston, South Carolina.

Although Boeing is a large, successful American company, it remains politically delicate to pursue business in Iran. Cognizant of this fact, the company has sought to speak Trump’s language when discussing its sales to Iran.

Boeing has highlighted American manufacturing jobs as a fundamental consideration of both the 2016 deal with Iran Air and the recent deal with Iran Aseman. According to Boeing’s official statement on December 11, 2016 announcing the deal to deliver airplanes to Iran Air, the sales will “support tens of thousands of U.S. jobs directly associated with production and delivery of the 777-300ERs and nearly 100,000 U.S. jobs in the U.S. aerospace value stream for the full course of deliveries.” Similarly, the April 4, 2017 announcement of the agreement with Iran Aseman noted “an aerospace sale of this magnitude creates or sustains approximately 18,000 jobs in the United States.”

Boeing’s government relations outreach isn’t limited to public statements. Following Trump’s public lambasting of the company for the cost of a proposed replacement for Air Force One, Boeing CEO Dennis A. Muilenburg has made it a priority to build a direct relationship with the Trump, first meeting with then-president-elect at Trump Tower on January 17. One month later, President Trump visited the Boeing facility in North Charleston, South Carolina which manufactures the 787 Dreamliner. That Trump visited the North Charleston facility rather than the larger Bellevue, Washington facility likely reflected the fact that Trump carried South Carolina in the election, but lost Washington state. Perhaps conveniently, North Charleston is the main manufacturing facility for the 787 Dreamliner, which has not been ordered by Iran Air or Iran Aseman.

After touring the facility, Trump presided over a rally attended by Boeing workers and Muilenberg. “My focus has been all about jobs. And jobs is one of the primary reasons I'm standing here today as your president,” he declared. “I will never, ever disappoint you. Believe me, I will not disappoint you.”

Given the clear parallel between Trump’s speech and Boeing’s positioning of its deals with Iran, it is highly unlikely that Muilenburg and Trump did not discuss Boeing’s Iran business, although there has been no public statement to this effect. It is likewise unlikely that Boeing would have proceeded with the deal with Iran Aseman unless it was reasonably confident in the viability of the deal. Certainly, the executives at Iran Aseman, a privately held airline that has not yet announced a similar deal with Airbus, would have insisted on Boeing’s assurances that the aircraft deliveries were politically viable.

Boeing’s Commitment to Iran

Boeing’s commitment to Iran requires not just political resolve, but also long-term thinking. Not only will these deals take many years to come to fruition—the Iran Air deliveries set to begin in earnest in 2018 and the Iran Aseman deliveries only in 2022—but the full extent of the export opportunity represented by Iran will only materialize over the next two decades.

There are three key considerations that Boeing needs to make. First, the company’s ability to supply aircraft to Iran is of great significance given that it has only one other true global competitor in Airbus. If Boeing is unable to fulfill these agreements it will no doubt lose significant orders to the European giant.  

Second, Iran’s current orders are primarily focused on the modernization of existing fleets and the addition of capacity on existing routes. At the moment, Turkish and Emirates Airlines have significant market share in Iran’s international travel market from Iran because of their ability to operate more flights from destinations in Iran to Europe through their respective hubs in Istanbul and Dubai. European airlines have also made significant inroads in the market in the last two years. For example, although Iran Air only operates flights from Tehran to London three times a week, British Airways now operates a daily service. At the same time, an aging fleet makes Iran Air unappealing to travelers and hurts the airline’s ability to compete with international carriers.

In the next decade, during which time existing fleets would have been modernized, Iran’s economic recovery and its favorable geography should combine to further boost tourist and business travel to Iran from a wider range of international markets. Indeed, the IATA has forecasted that Iran’s passenger volume could rise from 12 million passengers today to 44 million passengers in 2034.

Iran Air currently flies to about 50 destinations worldwide. By comparison, Turkish Airlines, leveraging the geography of its Istanbul hub, now flies to 296 destinations worldwide. It’s unlikely that Iran Air or any Iranian airline has the financial resources and market conditions to become a “mega-carrier”—and indeed these airlines are beginning to struggle. Still, Iranian carriers have significant room for growth, particularly in serving “transit” roles, which means that further orders are possible, especially for long-haul aircraft like the 787 Dreamliner.

Finally, Iran’s most commercially successful airline is privately held Mahan Air. Mahan continues to be listed on the OFAC Specially Designated Nationals (SDN) list for the use of its civilian aircraft in airlifting troops and munitions from Iran to Syria. But it’s fleet size of 50 aircraft is significantly greater than Iran Air’s 29 aircraft, and it flies to more destinations with greater regularity and a higher passenger volume. Should Mahan reform its business practices and clarify its ownership, Boeing and Airbus could be competing for another significant set of orders.

Framework for “Business Diplomacy”

For the above reasons, Boeing’s engagement with Iran isn’t about a couple of one-off transactions. It is about a longterm commitment to a market that will generate substantial orders over the next two decades. From a political standpoint, this makes Boeing’s foray into Iran so important.

Whereas US diplomats have no access to Iran and limited direct dialogue with Iranian counterparts, American executives are opening substantial channels of communication. In this sense, leaders like Muilenburg become the unlikely interlocutors between pragmatic commercial and governmental stakeholders in Iran seeking to engage US-Iran relations on a transactional basis, and the American political establishment, most notably President Trump himself.

Boeing’s deals could help build a framework on which to develop US-Iran ties in the coming years. In some respects, Boeing’s situation echoes the aborted Conocophillips oil exploration and production deal from 1995. Likewise heralded as a rekindling of US-Iran ties, the Conoco deal died at the hands of congressional pressure and sanctions legislation. But the Boeing deal may have better prospects for three reasons: it does not require an investment in Iran, the sale of new and safer airplanes principally benefits the Iranian people, and most crucially, it supports American jobs.

The Boeing deals need their own “implementation.” This process will keep critical commercial and political stakeholders engaged in a discussion about what constructive engagement with Iran can achieve. In its first phase, under the auspices of President Trump, the scope of engagement will likely remain limited to protecting aircraft manufacturing jobs. Let’s just hope he doesn’t let the workers down.

Photo Credit: Iran Aseman

The Other "Forgotten Man": A Look at Iran's Blue-Collar Workforce

Iran will soon witness a significant boost in its industrial output. Led by a resurgence in the auto sector, the country’s factories are receiving new investment, as major multinationals seek domestic and regional dominance across market sectors. Volkswagen will be building models in partnership with Mammut Khodro, while Mammut Diesel expands its production of Scania trucks. Renault will manufacture trucks in Iran with local partner Arya Diesel. Volvo has signed an agreement to build trucks in partnership with Saipa Diesel. The finalization of Renault’s long-awaited agreement to establish a new manufacturing joint-venture in Iran is expected soon. Peugeot, Daimler, and DAF are also also exploring local production. As the boom in passenger and commercial vehicle production in Iran picks up steam, a rather simple question remains unanswered—Who will build all of these new vehicles?

Iran boasts one of the largest blue-collar workforces in the Middle East. On the back of a population boom that began following the Islamic Revolution of 1979, Iran’s labor force has surged to reach over 27 million, roughly the same size as the labor force of Turkey, and over twice that of Saudi Arabia. The Iranian economy has struggled to absorb the influx of new workers, and the official unemployment rate remains stubborn at between 12%-14%, although some analysts believe the total is even higher. This simple fact explains two fundamental aspects about the dynamism of Iran's political economy. Firstly, the blue collar working class underpins significant consumer buying power. Secondly, the perseverance of Iran’s political diversity cannot be overlooked, especially not in a region where most such diversity has withered away.

Relief for blue-collar workers was fundamental to the early success of the win-win formula that drove the nuclear negotiations between Iran and the P5+1. The initial sanctions relief provided to Iran as part of the Joint Plan of Action (JPOA) focused on sectors which accounted for Iran’s largest employers, including the automotive sector. This was a direct result of advocacy of deal supporters in Washington, who argued that galvanizing Rouhani’s political base required showing tangible benefits to Iran’s blue-collar workers. As a result of targeted sanctions relief, the production of automobiles and commercial vehicles in Iran rebounded from 743,680 units in 2013 to 1,090,846 units in 2014, with year-on-year growth swinging from a 25.6% decrease to a 46.7% increase. This early success may have been the single-most important factor in validating the Rouhani administration’s gamble on diplomacy.

In the subsequent years, however, the importance of Iran’s blue-collar worker has been largely forgotten by business leaders and policymakers working on the implementation of sanctions relief. These stakeholders remain fixated with the Iran Deal’s role in the “Great Game” of the Middle East, and business leaders are focused on the intricacies of compliance and financing challenges as they approach Iran. In both cases, the international media is happy to play into the blind spots of the respective parties.

What has been lost is an appreciation that the “normalization” of relations between Iran and the international community is as much about elevating “normal Iranians” into a global consciousness, as it is about matters of international commercial, financial, and legal integration. While there has been progress in building awareness of Iran’s young and highly educated elite, whose start-ups and entrepreneurial verve play into the inherent coverage biases of the international media, a larger swath of society remains ignored. By a similar token, the rise of the “Iranian consumer” with untapped purchasing power and Western tastes has been much heralded, but the reporting fails to appreciate that Iran’s upper-middle class rests upon a much larger base whose primary economic function is not consumption, but rather production.

The struggle of the blue-collar laborer is one of the few truly universal experiences left in the world. The international fraternity of laborers is bound by a common set of anxieties which exist as much in Iran, as they do in Europe and the United States. These concerns range from access to healthcare to economic fears—all of which culminates in the stressful and all-consuming uncertainty of providing for one’s family.

The health risks faced by Iranian workers are well-documented in Iran’s extensive body of public health research. Issues include exposure to toxins, severe back and neck pain, and the workplace accidents. Most of the completed studies were based on research originally conducted among worker populations in Europe and the United States. The findings consistently suggest that the incidence of health issues adds considerably to the work-related stress of blue-collar workers, diminishing overall satisfaction with quality of life.

Alongside health concerns, Iranian blue-collar workers, both male and female, bear the fundamental burden of providing for their families. In this regard, there remains considerable skepticism of senior management. A 2013 study which looked at the sentiment of workers from at Iran Khodro and Saipa, Iran’s two largest automakers, found that staff report  “top management commitment” to high standards “is not positively related to staff degrees of freedom of choice” for the workers. This means that while the managers at Iranian auto companies may demonstrate their commitment to their staff with training programs and performance-based remuneration opportunities, Iranian auto workers still feel they are at the mercy of their superiors, ultimately hurting overall employee satisfaction. Given that Iran does not permit organized labor, this feeling of vulnerability is especially acute, particularly when companies are late making payroll or fail to improve safety standards.

In the West, the power of working class voters has reasserted itself with the Brexit referendum outcome and the election of President Trump, who boasted of his commitment to America's "forgotten man"—the blue-collar worker—in his inaugural address. Elections in France and Germany also loom large. Behind these electoral shifts is a heightened awareness of the malaise in the working-class heartlands of these countries. Yet while the frustrations of the working class are now better understood by voters across the political spectrum, the mere existence of the working class in economies such as Iran has not been fully acknowledged in these countries, despite the remarkable similarities in the Iranian blue-collar experience.

The only substantive difference between the Iranian and Western working class is that the two groups are demanding opposing solutions from their governments. Whereas voters in the United States and Europe are pushing for a protectionist turn in economic policy in order to protect jobs and wages, working-class voters in Iran have given their mandate to a plan which hinges on the forces of globalization. Having experienced the abject failure of protectionist policies in the Ahmadinejad administration, when Iran’s industrial output cratered under international sanctions and general mismanagement, Iran’s working-class is betting on the success of a different approach.

As the Iranian presidential election looms, a renewed mandate for the Rouhani administration will depend on the ability to demonstrate that sanctions relief has created high-quality employment opportunities, particularly for younger Iranians who face the highest levels of joblessness. Rouhani has succinctly described his vision in stating that “The future path of the Islamic Republic of Iran is the path of economic growth, non-oil exports, attracting domestic and foreign capital, and creating jobs for the educated.” Taking his statement as a “to-do” list, the Rouhani administration has already unlocked economic growth through economic reforms and revitalized non-oil exports through the lifting of sanctions and stimulus programs. Today, domestic and foreign investor capital is slowly being deployed. Job creation, of the kind that supports social mobility, is the remaining objective.

In accordance with Rouhani's vision and the tenor of Western populist politics, major multinationals looking to engage Iran need to consider their own blue-collar stakeholders, both in Iran and at home. Surprisingly few multinationals have touted the job-creation benefits of expanded trade with Iran. One of the few examples can be seen in Boeing’s statement following the finalization of its contract to supply 80 aircraft to Iran Air. In a clear nod to the rhetoric of the Trump administration, Boeing declared that “new orders will support nearly 100,000 U.S. jobs” within the company’s larger supply chain that “currently supports more than 1.5 million U.S. jobs.”

Troublingly, working-class voters in the West are empowering political parties that are either ambivalent or openly antagonistic towards the Iran Deal. In the United States, public sentiment towards Iran remains dire, with American voters considering Iran their second greatest enemy, only after North Korea. Many of these voters fail to recognize that their own job security could be tied to the trade opportunities represented in post-sanctions Iran. They are also unaware that the potential failure of the Iran Deal would principally hurt fellow blue-collar workers who are similarly at the mercy of forces beyond their control.

The great irony is that if there is indeed a breakdown in Iran’s new, improved relations with the international community because of electoral apathy in the West, it is Iran’s blue-collar workers who will be the first to suffer. Should sanctions "snap back", the layoffs in the manufacturing sector would be swift. In the event of possible global political conflict, Iranian conscription would draw indiscriminately from the ranks of its blue-collar labor force. 

In some sense, the full range of stakeholders, including business leaders, policymakers, and the media, continue to look at the Iran Deal through a lens that dates back to 2016 when JCPOA was formally implemented. The ground has shifted since then and new ways are needed to think about the Iran Deal in the current political and economic climate. By connecting the fortunes of blue-collar workers in Iran with those of their Western counterparts, a more powerful model of normalization might be found.

Photo Credit: Atta Kenare

Nearly Two-Thirds of Americans Oppose Withdrawing from the Iran Deal

As the one-year anniversary of Implementation Day approaches, a new survey has found that nearly two-thirds of Americans oppose withdrawing from the Iran Deal.

The survey, conducted by the University of Maryland Program for Public Consultation, which has conducted extensive public opinion research on both American and Iranian views on the Iran Deal, presented respondents with the main terms of the JCPOA nuclear deal and asked them to evaluate the best course for US policy.

The survey focused in particular on the idea that the United States should withdraw from the Iran Deal, and then seek to renegotiate its terms, a course of action proposed by President-Elect Trump during his campaign.

Across the board, respondents expressed doubt that Iran would agree to renegotiate the deal. A total of 69% of respondents, reflecting 75% of surveyed Democrats and 64% of Republicans, felt Iran’s cooperation was unlikely, even if the rest of the P5+1 came onboard.

Interestingly, while Democrats and Independents felt that the low likelihood of success made renegotiation untenable, with 86% of Democrats and 58% of Independents giving a “final recommendation” to continue with the Iran Deal, just 40% of Republicans came to the same conclusion.

Overall, of the sample of nearly 3,000 respondents contacted in late December of 2016, a significant 64% felt that the US should maintain its commitments to the Iran Deal under the existing terms.   

Steven Kull, director of the center that conducted the study, considered the results to be clear. “Though President-elect Trump campaigned on ripping up the deal and seeking to negotiate a better one, the majority of Americans would rather continue with the deal as long as Iran continues to comply with its terms,” he stated.

Importantly, renegotiating the Iran Deal did not feature in Trump’s promised actions for his first 100-days in office. This may reflect an understanding in the incoming administration renegotiation of the deal is not a priority for the American electorate, and when presented with the facts, most Americans feel that renegotiation is unlikely to lead to a better deal.

For deal supporters, the findings are encouraging and suggest that further public outreach about the deal and its benefits can help protect its political viability as Trump enters the White House.

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How Rex Tillerson's Oil Industry Politics Could Boost the Iran Deal

It has been widely reported that Rex Tillerson is to be named the next Secretary of State, ending speculation about perhaps the consequential cabinet post for the prospects of Iran policy in the Trump administration.

Tillerson’s appointment has shocked many. As the Chairman and CEO of ExxonMobil, he has no formal diplomatic or political experience. Tillerson is also a friend of Vladimir Putin, having built his name as a regional executive for ExxonMobil in the Caspian region in the late 1990s.

Some commentators have suggested that Tillerson’s appointment as Secretary of State will bring the back-room politics of the global oil industry into the heart of American foreign policy. Given the problematic role that oil companies have played in international relations, this may give cause for concern. However, for the prospects of Iran Deal implementation in the Trump administration, Tillerson’s appointment could represent the entry of a pragmatic figure who can look beyond the ideological fixations of people like John Bolton, his reported deputy. Tillerson’s public comments offer clues to his outlook.

Tillerson Does Not Believe in Sanctions

In a May 2014 ExxonMobil shareholder meeting, Tillerson stated, “We do not support sanctions, generally, because we don’t find them to be effective unless they are very well implemented comprehensively and that’s a very hard thing to do.” For a global company like ExxonMobil, which works in politically tumultuous markets, sanctions are an inherent risk to business. For example, Exxon has a pending project with Rosneft worth a reported USD 300 billion that is unable to proceed due to US sanctions. 

Given that there has been a renewed call in Washington for new, non-nuclear sanctions to be levied on Iran, Tillerson’s general disbelief in the efficacy of sanctions is important. This is particularly the case as Europe, China, and Russia have each signaled that they will not cooperate with any US attempt to renegotiate the Iran Deal—making comprehensive implementation of any new sanctions impossible.

Tillerson Wanted To Get Exxon Into Iran

In an interview with CNBC from March of this year, Tillerson made it clear that he saw Iran as an attractive market for ExxonMobil, despite US sanctions. He stated:

U.S. companies like ours are still unable to conduct business in Iran. A lot of our European competitors are in, working actively. I don't know that-- that we're necessarily at a disadvantage. The history of Iranian-- in foreign investment in the past, their terms were always quite challenging, quite difficult. We--never had large investments in Iran for that reason. And I don't know that the Iranians are gonna be any different today. We'll have to wait and see and there hasn't been any contracts put out. But I also learned a long time ago that sometimes being the first in is not necessarily best. We'll wait and see if things open up for U.S. companies. We would certainly take a look because it's a huge resource-owning country.

Since he made these comments, Iran has unveiled its new IPC oil contracts and oil majors Total, Shell and DNO have all signed heads of agreement outlining the terms of new investments in oil and gas production in Iran. Tillerson will see his former peers at the oil majors making huge strides in the market and will likely see this as a perfectly natural development for an economy coming out of an onerous sanctions regime.

Tillerson Sees Multinationals as Private Empires

As described in Steve Coll’s increasingly relevant history of the firm, Private Empire, ExxonMobil developed into the world’s largest company by pursuing interests very different from those of the US foreign policy. Tillerson’s predecessor, Lee “Iron Ass” Raymond once declared, “I am not a U.S. company and I don’t make decisions based on what’s good for the U.S.” For all intents and purposes, Tillerman, who rose through the ranks at Exxon, absorbed this outlook.

Raymond’s statement is particularly noteworthy given the intense focus of the current U.S. sanctions regime on defining U.S. and non-U.S. entities or persons and delineating the scope of Iran business that is accordingly permissible. The dilemma facing many of the world’s largest multinationals and financial institutions is that while they do not necessarily see themselves as “U.S. companies,” they are nonetheless treated as such by U.S. regulators. As a result, business interests in Iran become much more difficult to operate.

Tillerson may be sympathetic to rising calls from major European multinationals across industries for the U.S. to be more proactive in the implementation of the Iran Deal, and in particular, to reduce the extraterritorial nature of its regulatory oversight by changing the extent to which global companies can be reduced to US legal entities.

What About Miles’ Law?

There is an old adage of political science called Miles’ Law that describes how perspectives on policy change depending on one's position within the state bureaucracy: “Where you stand depends on where you sit.”

It may be that in assuming the role of Secretary of State, Tillerson will adopt a more inherently political and therefore oppositional attitude towards Iran. Certainly figures like John Bolton will seek to push Iran policy in a much more hawkish direction.

But Tillerson will ostensibly have the greatest authority in the ongoing treatment of the Iran Deal, inheriting the hands-on role defined by Secretary Kerry. As an oil industry CEO named "Rex," he likely has the advantage over Bolton in getting subordinates to bend to his will. Trump is also more likely to see Tillerson as a peer. 

The present implementation of the deal benefits from the expertise and management of career civil servants like Ambassador Stephen Mull and Chris Backemeyer, who could be encouraged to stay on the Iran file if Tillerson adopts a pragmatic approach. Tillerson could run his State Department as a private empire, allowing the overall tenor of the incoming administration’s foreign policy to be defined by Trump and his more vocal acolytes, but ensuring that the execution of State’s diplomatic aims retains a more businesslike, if not outrightly commercial, logic. This would not be too dissimilar from the operation of the Iranian MFA within the overall context of the political posturing of the Islamic Republic. 

Those who support the deal can find some comfort in the idea that a career of training in the realist politics of the oil industry may make Tillerson a more pragmatic voice in Trump’s cabinet, one which may see the Iran Deal as an appropriate measure that addresses key security concerns, but also provides the world’s private empires desired access to a promising market. 

Photo Credit: Fortune

Smarter Iran Policy Could Give Trump Leverage to Protect American Jobs

Last week, President-Elect Donald Trump and Vice-President Elect Mike Pence traveled to Indianapolis, Indiana to save American jobs. In a speech at a manufacturing facility of Carrier Corporation, a subsidiary of United Technologies Corporation (UTC), Trump announced that the company would preserve approximately 1000 jobs it had planned to outsource to Mexico and would make a new investment to preserve the competitiveness of its Indiana manufacturing facility. In exchange for its compliance, UTC would receive significant tax incentives.

The Wall Street Journal editorial board called the Carrier intervention a “shakedown,” and it was shocking to many that President-Elect Trump would go so far as to interfere in the decision-making of a private enterprise in order to preserve a small number of jobs.

By a similar token, members of the business and policy communities were dismayed to learn that the Trump administration may seek to interfere in the Iran Deal more deliberately and quickly than previously thought. While Trump was making his announcement at Carrier in Indianapolis, the U.S. Senate voted unanimously to renew the Iran Sanctions Act. The following day, it emerged in a report in the Financial Times that the Tump transition team is exploring new non-nuclear sanctions.

But what if Trump is missing out on the chance to win big on both job creation and Iran policy by connecting the two efforts? The potential nexus of Iran policy and jobs policy is clear. Either Iran can be a direct destination for American-made goods, unleashing a new and highly valuable export market, or, Trump can use his powers to permit non-U.S. companies to more freely trade with Iran, offering a growth opportunity that may enable executives to forego cost-saving layoffs in the US. 

Indiana, where Trump and Pence stood up for American jobs, illustrates the salience of Iran to American business interests quite well. Nearly every major multinational corporation with operations in Indiana, counting among them many of the state’s largest employers, have had or currently maintain business dealings with Iran.

When Trump met with Gregory J. Hays, CEO of UTC, at Trump Tower to negotiate the preservation of the jobs at Carrier in Indianapolis, he probably did not realize that instead of offering a tax incentive, he could easily use his future executive powers to enable Carrier and UTC to resume doing business in Iran, a market that was once highly lucrative. 

In 1972, Carrier invested USD $2.4 million (equivalent to nearly USD $15 million today) in order to acquire 50% of Carrier Thermo Frig (CTF), an Iranian manufacturing joint-venture. CTF operated until the Islamic Revolution, growing steadily and paying its shareholders a dividend of just over USD $1 million in 1978 (equivalent to nearly USD $4 million today). While the numbers may seem small, it is worth considering the unrealized growth potential. In neighboring Turkey, Carrier Corporation currently owns 50% of Alarko Carrier, a manufacturing venture similar to that of the former CTF. In 2016, Alarko Carrier generated USD $131 million in revenue.

Today one can still find Carrier air condition units in Iran. Some are old models from the CTF days, others are newer models imported via the grey market. These are serviced by Sarma Afarin Industrial Co. a publicly traded company, which emerged from CTF when Carrier pulled out from Iran in 1979. Sarma Afarin still manufactures climate control units based on Carrier designs.

A couple of days after announcing the Carrier outcome, Trump turned his attention to Rexnord, a diversified industrial company. 

Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!

— Donald J. Trump (@realDonaldTrump) December 3, 2016

Just like Carrier, Rexnord had direct business dealings in Iran prior to the Islamic Revolution, and then continued supplying Iran through non-U.S. subsidiaries. The company only began to completely wind down its trade with Iran through in 2009, according to regulatory filings. Iranian companies continue to source and service Rexnord systems through the secondary market.

The incoming administration should realize that the Carrier and Rexnord cases are not exceptions when it comes to Indiana or America's Iran business ties. For example, Indiana is a leader in the American pharmaceutical industry. One of the state’s largest employers is Eli Lilly, which has its global headquarters in Indianapolis. According to regulatory disclosures, the company currently supplies “medicines for patient use in Iran.” The company exports to Iran and conducts related activities “in accordance with our corporate policies and licenses issued by the U.S. Department of the Treasury's Office of Foreign Assets Control.” The encouragement of the Trump administration would certainly help Eli Lilly penetrate the Iranian market, which is becoming a goldmine for European pharmaceutical companies. American firms are being left out. 

Indianapolis is also home to the sprawling North America headquarters of Switzerland's Roche Diagnostics, which researches, develops, and manufactures laboratory equipment for the analysis of medical samples. Under licenses and exemptions for medical equipment, Roche exports diagnostic equipment to Iran through its local agent, Akbarieh. While Roche products manufactured in Indiana are not imported directly to Iran, the research and development performed in Indianapolis informs the rollout of products in the country. Other sections of Roche’s business are operated locally by Roche Pars, a wholly-owned Iranian subsidiary established in August, 2013. Roche Pars is currently the fastest growing pharmaceutical company in Iran, registering 50% annual sales growth as it approaches 5% market share.

Indiana boasts a proud history of transportation manufacturing. The state is home to the world’s sole manufacturing plant for Toyota’s midsize Highlander SUV. While the Highlander is not currently sold in Iran, Toyota’s RAV4 and Corolla models are strong sellers with nearly 4,000 models sold since March of this year. The Highlander would likely do very well, as two of its direct competitors are among the most popular imported models in the country. The Hyundai Santa Fe is Iran’s top selling imported car, followed closely by the Kia Sorento. However, if the Trump-Pence team did decide to unleash Indiana’s mighty Highlander on the Iranian market, they would have to extend an olive branch first, as Iranian legislators have blocked the import of US-manufactured automobiles in retaliation for the US renewal of the Iran Sanctions Act.

According to a 2012 filing to the Securities and Exchange Commission, Cummins, a world-leader in diesel engines and generators, continued exports to Iran via its European subsidiary until 2010, when sales totaled approximately USD $1.3 million. Just two years earlier, sales were USD $5.7 million. As sanctions have tightened, third party importers have stepped in to divert generators produced in Cummins’ factories in places like Chongqing, China and Pune, India to Iran. Neither Cummins, nor the workers at its Seymour, Indiana factory, now benefit from what was once a promising market. 

Rolls Royce’s Indianapolis facility produces “more Rolls-Royce products... than anywhere else in the world” according to its website. While this facility primarily produces small to medium civil aircraft engines and marine and helicopter engines that are not currently exported to Iran, the company has expressed that it welcomes Iran Air’s pending acquisition of Airbus aircraft that will be powered by the larger Rolls-Royce Trent-series engines. In addition, the company is reportedly in talks with Iranian energy authorities to determine whether Rolls-Royce diesel and gas generation systems can be acquired as part of upgrades to Iran’s power infrastructure.

There are almost certainly other companies in Indiana that would benefit from an enabling of trade ties with Iran. In 2014, NIAC, an advocacy group, published a report that examined the total value of US export revenue to Iran forgone between 1995 and 2012 due to the imposition of sanctions. The researchers found the total value of lost exports to be as high as USD $175 billion. In addition, the lost exports translate to an average of 66,000 jobs lost each year. 

Even in the American heartland of Indiana, the economy depends on the success of major multinational corporations, some headquartered locally, others operating foreign outposts. For nearly all of these companies, Iran is a market of significant interest.  If the Trump administration wants to be known for its business acumen, it should think more creatively as to how best to incentivize global corporations to preserve American jobs. Rather than using public pressure and tax incentives to compel global companies, Trump should offer opportunities that encourage growth and ambition.

Given the renewal of the Iran Sanctions Act, it remains the prerogative of the executive branch to green-light Iran trade through the provision of OFAC licenses. Donald Trump has clearly realized that his new role as President-Elect gives him immense influence over some of the world’s largest corporations. He should use that leverage to give big business what it wants—new markets in which to compete. For the workers at Carrier, Rexnord, Eli Lilly, Roche, Toyota, Cummins, and Rolls Royce, anything that reduces the pressure on their executives to slash costs could make all the difference. Currently, European products dominate Iran's marketplace. Products made in Indiana—and indeed in all fifty states—could find a hugely receptive market in Iran. The Trump administration would be wise to take heed. 

Photo Credit: Wikicommons